Novavax, Inc. (NVAX) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the H.C. Wainwright 25th Annual Global Investment Conference. I'm Vernon Bernardino, the senior analyst. I cover this tech company called Novavax, ticker NVAX, with [indiscernible] and a $35 price target. Some interesting news today, we'll get a chance to talk about it, but as you know, this is a company where they have a unique approach to the COVID-19 space, in that is a standard approach, which is a protein-based technology. With us today is the Chief Financial Officer, Jim Kelly. And a treat for me is Robert Walker, their Chief Medical Officer who's been onboarded in the past year. So earlier this year, with the change in [ Matrix ], changed some priorities that the company announced. One of them was to [indiscernible] an updated vaccine, another was to reduce the velocity of spend, management of cash and improve issues. But also, again, something that has always been close to my heart, and that's this is a company that I've covered actually since 2004, since the [indiscernible], some of you may know that program, and that is a technology that is a next-generation protein-based approach and non-mRNA to COVID vaccines, but also to infectious diseases. You may or may not know that they've had basically programs in seasonal influenza but also RSV, which is a disease that kind of emerged in the past. So I was wondering if you could give us a little update, I guess, on the delivery of the updated vaccine, [indiscernible] supplies, your commercial activities are moving up to and perhaps some of the regulatory environment that is now -- as some of you may know, a meeting tomorrow [indiscernible] is going to involve Novavax, Moderna and Pfizer-BioNTech, which are the 3 key players in the COVID vaccine space today. So here we have one of them, and I'm very excited to have them introduce the company to you and update your other programs.

Well, thank you very much, Vernon. I really appreciate you having us sit here, me and Bob, be in here and all, and for joining us as well. Your timing is excellent in terms of being a vaccine company in respiratory states, commercially focused on COVID this year, now is the time, the beginning, that Novavax [ has ] respiratory season, so much happened in real time as you referenced. Tomorrow, we see [ ACIP ] recommendations [indiscernible], Pfizer, Moderna, talking about our vaccines and how they're doing against [indiscernible] recommendations coming out of that with respect to vaccinated populations and impact seen. But importantly, FDA took action today with both Pfizer and Moderna. We meet -- they haven't taken action or risk just yet. We're in active review now, right? And so we're following up, answering questions with them, and we look forward to completing that review process. We're ready. I think if there's anything that the group takes today from this conversation it's that we're ready to go. We had a vaccine in market in the U.S. as well as in Europe. We've manufactured tens of millions of doses, meaning we're ready to supply. We got ample supply to the new demand this fall, and what we're working through now is a regulatory filing. So we prioritize U.S., Europe and Canada, active review right now in U.S. and Europe and Canada as well. And's so we're preparing ourselves to have authorization, and then we have our full driven market strategy then behind that. So really excited to be here, especially just the timing of this [ respiratory ] season.

I think part of this competition is the fact that if you were to be ready to distribute, I think you'd need to already be, just like Moderna and Pfizer, already have vaccine in the warehouse, right?

Right. Well, certainly. In terms of [indiscernible], it's all about creating a [indiscernible], you've got your label, you've got your recommendations, and then where you contract, focusing, of course, on the U.S. market. And we're ready.

And specifically about the regulatory side of it, so previously, vaccines are introduced through emergency use authorization. It's a whole conversation by itself, but that's how the vaccines gone to market without full licensing. Pfizer and Moderna have the licensing. You guys are still under review. What is the current stage there?

Yes, certainly. And a reminder is that while we worked to ensure licensure in the U.S., we received full licensure just recently in Europe. And so it's our intent to sort of continue that trend of getting the full licensure everywhere. With respect to the U.S. market, we've already initiated that rolling submission. We expect to complete that filing this year, and we also have the expectation that we'll operate under an approved [ utilization ].

Now one thing that would be important to talk about is the fact that, hopefully, everybody is aware now that we have an emerging variants of COVID that are not only emerging, but they're actually taking over versus previous variants. Some of them are resulting in increased hospitalization. Even deaths, although not alarming, are increasing. Can you talk about, perhaps, you have an updated vaccine, the activity of its performance of that vaccine against emerging variants? And if you could tell us what are those, so that just for our education.

Yes, sure. So I think, first of all, we should clarify that all [indiscernible] vaccines manufactured in the U.S. are using the same strength [indiscernible] to make the vaccines. So -- and some [indiscernible] what else shows across protection, across reactivity in vaccinated [indiscernible] these other emerging variants. [indiscernible] that, that's going to be true for any [indiscernible]. I mean it still has to be proven, but I think this is generally what we should sort of assume. So in the data that will be presented tomorrow at ACIP by our President of Research and Development, Filip Dubovsky, we'll look at exactly this question, but 70% [indiscernible] Novavax [indiscernible]. We're at [ 1.5 ] vaccines administered to animals in preclinical settings, and then we look at the range of variants to which neutralizing antibody responses are generated [indiscernible] times that will be sufficient to [ extend retentions. ] Just like the others [indiscernible] certain customary approach. Those strains that we earlier reported on, it excluded [ 1.6 ] [indiscernible], more recently, 16 points since in each [indiscernible]. And so you'll see a little bit more of that and some additional streams tomorrow.

Right. I don't want to steal Robert's thunder right now.

No, the way to understand this, I'm sure you already have followed whether [indiscernible] this vaccine is. It's not mRNA itself that is causing the [indiscernible] that lends to protection of yourself, it's the protein that they are coded to express, and here you are a company that's actually advancing the protein itself also in a concomitant form that they express. But instead of an mRNA approach, it's a protein approach. And how does that differentiate your vaccine in a sense -- it's not mRNA that's kind of understood, but in the marketplace, how might that be differentiated for people who -- perhaps most of them are not going to have any experience with the protein-based vaccine in the U.S.?

Well, I think that frequently, what you'll hear is people describe a protein-based vaccine as a more traditional vaccine. [indiscernible] more experience, more safety data over the years, perhaps a great comfort level. So I think that, that's maybe the differentiated piece. And then for whatever risk, there are folks who choose to get an mRNA vaccine. And right now, it's really the only one other option, and that's the only [ vaccine ]. I think we already realized that optionality is critical to uptake, right? So the more options people have, the greater uptake of the vaccines, the better protected the population is. So I think on a lot of levels, it just makes sense to have variety of [indiscernible] clinical approaches. So yes, so in terms of how we're differentiated, I mean that's how I would perceive us. We have other features that we think are attractive. So [ it's cheaper ] -- exactly. We're refrigerator-stable. You don't have to freeze our product. We're kind of one size fits all, same dose for all agents to [indiscernible]. So there isn't -- just sort of remember what cap covers you use. You don't have to reconstitute. You don't have to thaw. I mean those are important, and they're important in terms of reducing medication [indiscernible], which is a big issue during the pandemic.

Yes. And some may not be aware that those storage conditions are some of the challenges that were obstacles to wider adoption of the mRNA-based vaccines, because can you imagine trying to distribute and administer a product that has to be stored at minus 80 in a tropical country, for example, [indiscernible]. I think -- well, for the people in the Philippines, actually got [indiscernible] and non-mRNA vaccine. Unfortunately, I think some of it was, I don't remember, I think they got like 10 million doses, but a lot of it were on some of the Chinese [indiscernible], for example. Now the second priority that the company had was to address that. I know [indiscernible] the company for a long time. I mean R&D is expensive in general, but vaccine R&D, especially if you hopefully remember some of these vaccine studies from each of the companies were over 40,000 people, right? That's expensive by itself. But because, for example, one of the vaccines that -- seasonal flu vaccine, they not only had to generate tens of thousands of data in tens of thousands of people, but because it's commoditized, you have to do it the right way. You had to do it when the season was -- [ that's the stuff, ] the opportunity to vaccinate people. Can you talk a little bit about how the company has changed as far as your management of your cash and some of the things you've done with the balance sheet and dedication of your cash to advancing [indiscernible] into this year, and then hopefully [indiscernible] next year?

Absolutely. Novavax is evolving from a pandemic era company into a traditional endemic vaccine company. And I can't reiterate enough just how excited we are and [indiscernible] ready to deliver doses, ready to be relevant. And when we were talking patient's preferred -- preference share in our market research is 25%, 30% prefer a protein-based vaccine if they can get it. And so everything we're doing should resize and reshape and center our cash runway is making sure that we have the financial strength to deliver for patients. And so in terms of what have we done to make that transition, a couple of really important things. One is we are targeting a [indiscernible] of the size of company by next year, so we reduced our R&D and SG&A by 40% to 50% in target in '22 through 2024. We hit about midway through that this year. Along the way, in terms of resizing the company, we have also [indiscernible] our pipeline on, for example, the [indiscernible] program, which we think can further be transformative to the company. [indiscernible] what kind of role [indiscernible] about the investment we're making there. But in order to do so is making sure we have the financial strength [indiscernible] the size of the company. And in addition to that, onetime liabilities, a lot of which were a part of creating that manufacturing network for pandemic era, well, we've little by little, this year, I'd say little by little, we've reduced that by $1 billion year-to-date by getting through settlements and negotiations. So we're really happy with the progress we've made that set us up with financial strength going into this fall. And to be specific, midyear, we had $900 million in cash and receivables. That's the kind of financial strength we have. As we mentioned this fall vaccine season are all within our [indiscernible], creating more value through [indiscernible] technology platform.

And one thing you don't really get credit for, I think, is the changes that were made with your collaboration with SK. What specifics should be focused on there, if investors, I think, should actually convert into the company [indiscernible]?

Thank you very much for bringing that up. We've had some initial partners for credit redeployment. SK is a really good example as we have just announced back in August that we have [indiscernible] to our strategic business relationship through extending our license in Korea, Thailand, Vietnam, and then also making the strategic investment in us as a company [indiscernible]. They acquired 6.5 million shares, $13 per share. Compared to the [indiscernible] almost [ 16% ] premium. So you've got a strategic who we work closely with who wants to continue to be a part of the story in the current markets we're working in, who value the technology, who value us as a company and want to take a position in Novavax to ensure the longstanding relationship. So it's as much as anything, a signal that somebody who understands our vaccine well wants to work closer with us. And we, with them.

And I think one thing that also [ last you ] pointed out is the change in your agreement with Canada. Can you talk a little bit about that as well as perhaps contracts you have in place? You have guidance of $1.3 billion, $1.5 billion in revenue this year. Just wondering how some of those numbers can be described and contracts in place, et cetera.

Well, certainly. And the Canada [indiscernible] we did this year critical with respect to our financial strength. We've raised over $600 million in capital this year to further strengthen our balance sheet. $450 million is this nondilutive financing through Canada, for example. They wanted to [indiscernible] it's been moved from a pandemic contract to an endemic contract. We're happy to do so. And so we were able to extend that agreement and get some of the financing we need to improve our strength. The other $150 million came through equity raises. A significant amount, $85 million, was GSK, I mentioned that at [indiscernible]. So this Canada -- and then it's really about working with Canada to ensure access to that market for the coming years. We've also set up our manufacturing there to originating facility to manufacture on Canadian soil. And we look forward to a longstanding relationship with that country.

Yes. [indiscernible], I think, a little bit of connection on the other side of the border, I think, shows that you have a great relationship with Canada. Now as far as the last part of your [indiscernible], your technology platform, I covered the company starting [indiscernible] what is called virus-like particles, but it has evolved, and I think has been fine-tuned to what is called a nanoparticle technology, and it's a nanoparticle protein. This is a technology that was used to make the COVID vaccine Nuvaxovid, but it obviously can also be leveraged to advance vaccine candidates or other infectious diseases. The near-term obvious target would be a preventive vaccine. Again, you've already had a Phase III stage program in RSV, something that may or may not be interesting to [ target ]. But the technology can also be applied to other infectious diseases. And the company has explored this technology in other infectious diseases such as [ malaria ], Ebola. Those may not be commercial opportunities, but this is a flexible technology. I just wondered if you can talk about leveraging the technology [indiscernible] the near future.

Well, Bob, you want to take it? Because we have tangible evidence, and then there's future of it.

Yes. So I think the pipeline asset that is a priority for us right now is the combination of vaccines. [indiscernible] yet. So -- and particularly for us, flu plus COVID is an interesting product. So that's an area that we are -- I think you have the past earnings call. [indiscernible] on our last earnings call, we stated that we were resuming investment in the product. And we have a certain stage [indiscernible] investors that we're committed to now to develop [indiscernible] products and to prepare for a [indiscernible]. We're working towards that, and we think that's -- the goal of that study will lead to replicating the [ striking in-distress ] signal that we saw in the Phase IIa study and to generate a larger signal [indiscernible] that can be used to that and go to the FDA and plan to get our [indiscernible] approved. So that's where we are with that product. I think we all are, I would say, have tremendous amount of enthusiasm for the potential for that combination [indiscernible]. I think that Board and our leadership, they understand that, and [indiscernible], they're communicating to the rest [indiscernible].

Yes, I'm looking forward to that program advancing as well because in my opinion, and of course, this is my opinion, I think the protein-based approach lends itself best to that combination COVID-influenza vaccine versus an mRNA-based approach, which at this point is really not proven. So -- and I think some of you know that they've had good luck with these -- advancing those candidates. So I think you might be a leader in a combination [indiscernible], and I think it's an unappreciated opportunity because since such a product advanced, it's really a premium product that I think the company is going to be able to have a legacy in the vaccine space.

Let me just add one other thing. We haven't shut the door in anyway on most [indiscernible]. So that's the other piece of it [indiscernible].

Yes, including pandemic preparedness [indiscernible].

Yes. And first, protein-based vaccine, but then it's a better [indiscernible] approach. So I want to thank Jim Kelly, CFO of Novavax; our Chief Medical Officer of Novavax, Robert Walker. Thank you, everybody, for attending this presentation. Hopeful you've had an opportunity to also look at other interesting companies at our H.C. Wainwright Global Investment Conference. Thanks again.